A wealthy American lady visits the most famous hat maker in Paris. She sees a long and luscious tape and immediately falls in love with it. The hat maker takes the ribbon in her hands, gives it a few twists, and creates a stunning hat. Sparkly! The lady grabs it immediately. “How much?” she asks.”five thousand francs“replies the hat maker.”five thousand francs!” exclaims the lady, “but it’s just a tape!” “Mrssays the hatter, “the tape is free.”
Welcome to the ‘tape is free’ economy, or in other words, the knowledge economy. What matters is the intellect, the skills, the capacities, the know-how, the human capital. Yes, you need financial capital as a vehicle, but you compete in your ability to create value, and this ability lies more in intangible thought processes than in the tangible of your bank account. Yes, you need tapes too, but everyone has them. Hatters are unique, ribbons are merchandise. Industries used to compete on quality. Today quality is the basis, a pass, the minimum input. Other things have been taken, such as design, fashion or extra services. Knowledge is now the currency. Companies should be defined by what they know, not by what they do.
It’s a world of “how to”
There is nothing terribly new in the story of the Parisian hatter. Value has long been seen as going beyond the obvious product: either in (a) unique know-how, (b) the ability to make tapes on demand, or (c) how the tape becomes the excuse for another thing: to sell other more profitable things in the hat shop, maybe? In 1999, US companies began offering free computers to anyone who signed a long-term contract for Internet service (Fortune, October 2000). Ma’am, the computer is free. In the UK, and I suspect elsewhere, some mobile phone companies give away your phone as long as you sign up for their airtime service. Ma’am, the mobile phone is free.
Amazon.com is, on a superficial level, a bookstore. On a more serious level, it’s a system that knows who you are and what you’ve bought in the past, allowing it to send you personalized recommendations and emails when a new book has been written on something you’re interested in. On yet another level, it’s a public book review forum where readers can post their own reviews and see what other people think. And on another level, parallel, it is an incredible search engine for topics, ideas and cross references. Ma’am, this is all free, you just pay for the book.
Long before people started talking about the knowledge economy, the software economy had taken over. A good example of this is the parent company of American Airlines, which made more money licensing SABER, a software package used by travel agencies and airlines to make reservations, than it did from the airline’s own traffic. It’s a “how to” world. The software economy is a “how to” economy.
It is also an economy of access. Access to information, to the client, to people in general, but, above all, to a service. The ‘material’ world is in trouble in the access economy. Microsoft plans to stop selling CD software in colorful boxes and instead provide, for a fee, continuous access to downloadable software from its website, which has the added benefit of being constantly updated. In fact, everything that is programmable can follow the same pattern. As someone once said (perhaps in Silicon Valley), “Own nothing if you can help it; if you can, rent your shoes.” It’s rental time, knowledge time, access time and intangible asset time. Madam, the CD is free, you pay for the use of the ‘how’.
means to an end
It is also a business world of ‘means to ends’, a variant of the world of access. BAA, which owns London’s Heathrow Airport, makes more money from retail activity than from all air traffic. Yes, in case you didn’t know, Heathrow airport is a huge shopping mall that has landing pads for things called planes that carry people from A to B. The real deal is in the shopping. It is increasingly common for passengers to spend more money in shops than on their plane ticket. Air traffic is access to the passenger’s pocket.
Ma’am, is the traffic free? Not entirely, given the ridiculously high prices for airline tickets, particularly in
Europe. Here the customer pays for everything: air transportation, use of facilities (airport tax) and merchandise purchased while waiting. In other words, he pays to be there, he pays to wait, he pays to buy while you wait, and he pays to go.
If someone needs more convincing, they need look no further than the newspapers. The quality
daily in the UK costs pennies. The news is the excuse, or vehicle, of advertising. Newspapers don’t make money from news. Yes ma’am, the newspaper is (almost) free. In fact, the world of free newspapers and magazines is growing. I predict that a free, quality newspaper will soon be a reality. All it takes is another Stelios Haji-Ioannou, Chairman of easyJet, the European low-cost airline, to wake up one day and decide to show the world that it can be done and that money can be made.
What kind of capital circulates in this new economy, where intangibles and access to an asset are more relevant than solid bricks or possession of the asset itself? The types of capital seem endless. You can find loads of conceptual information, references, essays, and entire business models based not only on human, social, or intellectual capital, but also in lesser-known forms, including structural, consumer, digital, process, and innovation capital. . The main challenge for companies is how to measure them.
New economy organizations emphasize them to varying degrees. Skandia, a Swedish insurance company, has long publicly reported all such forms of capital and their flow in its annual report (Skandia Navigator). Another Swedish company, the consultancy Celemi, best known for its business simulation game Tango, incorporates an ‘Intangible Asset Monitor’, along the same lines as Skandia. It won’t be long before it becomes the norm for companies to try to provide a detailed measurement of intangible assets.
The investor metaphor
But let’s go back to the economy of the tape is free, where only one thing defines the current times: the triumph of the brain over the hands. Henry Ford used to complain: “Why every time I ask for a pair of hands, does a brain come attached?” Obviously he didn’t like the attachment. Today he would have minds, occasionally attached to a pair of hands.
In this new world of business, one thing, to me, stands out in the multitude of ideas, new concepts, old concepts masquerading as new, jargon and new business jargon. It is the so-called ‘investor metaphor’.
Originally, the employee was a cost: in fact, it is still a cost in many business models today. In the 1980s, employees became assets. In fact, CEOs and HR executives around the world told us that employees are a company’s most important asset.
The reengineering/downsizing movement of the Western world and, to a lesser extent, other economies, added little to the credibility of the statement. As a friend of mine was saying, they forgot one word: disposable. Employees are our most important (disposable) assets. However, ‘active’ is a ‘cost’ upgrade; after all, you’d rather feel like an asset than a dollar number on the operating expense report.
A third shift in the understanding of employees, after costs and assets, is the one promoted by Terilyn Davenport and others: employees as investors. In other words, investors of (their own) human capital. And what do you do when you have capital to invest? You make it grow by assigning it to a growth environment; You take care of it, you manage it, you retire it if it doesn’t grow and, at the end of each year, you look at the return on investment.
If individuals treat their own human capital (talent, abilities, skills, knowledge, wisdom) as a
true capital, things start to look very different in the field of human resources. The workplace must allow for the growth of personal capital: no one would invest in a negative growth or no growth environment.
HR departments become more like venture capital providers or incubators, looking after all those investments. The main role of leadership is to create the conditions for that capital to grow. The investor metaphor applied to employee relations puts ‘brain owner value’ first; shareholder value is the consequence. And the one who commands is the one who has the capital to invest, not the one who receives it.
There is a profound difference in this new model, beyond the metaphor. It’s revolutionary, not just semantic. Silicon Valley, for better or worse, has followed the investor metaphor more than other places.
People equals brains in the Valley. Actually the Valley = nuts + (resources x power x glory), according to Michael Lewis, author of liar’s poker and, more recently, the new new thing. Given the way Silicon boys jump from one company to another and how bidding for brains dominates the market, perhaps we should talk about a ‘mercenary metaphor’. But this is a topic for another day.
In this Brains-R-Us economy, the individual is in charge. The only problem is that the message has not yet reached a few million people. When you do, things will look different. For example, compensation and benefits (C&B) is still very much a one-size-fits-all model. Well, two sizes, part time and full time, plus/minus advantages. The time for ‘one-on-one treatment’ and one ‘one-on-one brain’ is fast approaching.
At some point, companies will have to offer a portfolio of C&B: number/allocation of hours (complying with local labor laws but personalized and tailored), training packages, sponsored higher education, personalized bonus, family benefits, etc. It will be a ‘pick your own’ package where people will trade off between the benefits on offer: ten hours, four days a week, sponsored education instead of bonus, no car but daycare, extended vacation, access to unpaid and sabbatical leave.
By 2003, up to 60% of C&B packages in the Western world may be highly personalized, according to consultants Towers Perrin. In other words, people will create their own deals. The Fordian ‘You can have any C&B package you want, as long as it’s the one we offer here for everyone’ will go away. The transformation of labor practices in the Western world has seen nothing yet.
Lady, what I do is free; You pay me for what I know The monthly payment is last on my list of
C&B rewards for my investment in intellectual capital. I look forward to the next annual ROI…